senate Bill S. 2605

Should Stock Buybacks be Prohibited?

Argument in favor

Stock buybacks help companies artificially boost their stock prices, manipulating the market to reward corporate executives and shareholders instead of workers. Empowering employees to elect members of their corporation’s board would align companies’ and employees’ interests.

Yes! Stock buybacks artificially raise the price of a corporation’s stock and lead to even bigger pay raises for the CEO and the executive board without any effort on their part. This practice only obscures the real value of the company. Also, at a time when we have ever increasing income and wealth inequality employees need to have some say over who runs the corporations that employ them! This is a great bill!

Reagan administration's decision to make stock buybacks legal coincided with longterm wage stagnation. Since then, something like 90 percent of corporate profit goes to this rather than reinvestment in employees. It's simple stock manipulation to line CEOs and heavy investors profits in the short term. Theres no good reason for it to be legal besides some vague sense of "government=bad" that has been drilled into conservatives heads. Government IS bad-- it's just that it's when they don't protect the economy from reckless aristocrats.

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Argument opposed

Stock buybacks are a healthy part of financial markets that benefit investors, including the more than 50% of Americans who directly or indirectly own stock. That money can then be reinvested or used to start businesses or purchase goods and services — all of which boost the economy.

This idea is so misguided it is hard to believe that anyone would actually propose it. Stock issuance and stock repurchase are a fundamental principle of corporate (public company) finance. Corporations issue stock to raise capital and expand. The value of those shares is roughly related to the value of the corporation’s assets plus a premium based on the expected potential for a profit. Issuing more shares decreases the underlying value per share. Buying back shares increases the value per share. There is NOTHING ARTIFICIAL about the increases or decreases, as the bill summary states. In many cases, the employees are also shareholders through 401Ks or other stock purchase plans. So the value of the employees shares are also affected directly based on these actions. The idea of prohibiting stock repurchases (only one side of a transaction) is absurd. The bill also proposes that public companies be required to have one third of the board consist of employees. Although this might have some attraction to a company as part of good management, requiring it by law seems Communist inspired. I guess that’s no surprise considering the political leaning of the sponsoring Senator. These days, communists call themselves Democratic Socialists. Overall, the bill is a bad idea and another attack on American values that we have fought so hard to protect.

No it should not be prohibited at all. It’s a private company. Who are you to tell a private company what to do with their own money? Think of it this way. When they buy back their stock, it helps small investors also. The company’s stock goes up significantly, allowing the investor to make a profit. Then that investor can invest in creating jobs or raising wages.

What is Senate Bill S. 2605?

This bill would prohibit publicly traded companies from repurchasing their shares on the open market and require that public companies allow one-third of their board to be elected by their employees (a practice known as codetermination). Current law allows publicly traded companies to “buyback” their shares, which has the effect of bolstering the stock’s price; and whether employees elect members of the board is left to individual companies’ discretion.

This bill would repeal the Securities and Exchange Commission (SEC) 10b-18 rule, which currently makes it easier for corporations to buy back their stocks. It would also ends corporations’ abilities to buy their stocks back on the open market, although repurchases through tender offers (which are subject to greater disclosure) will remain allowed.

Impact

Employees of public companies; stockholders of public companies; public companies; and Securities and Exchange Commission (SEC).

Cost of Senate Bill S. 2605

A CBO cost estimate is unavailable.

More Information

In-Depth: Sen. Tammy Baldwin (D-WI) introduced this bill to rein in corporate America’s addiction to stock buybacks by giving workers a say in how their company’s profits are spent.

“Corporate profits should be shared with the workers who actually create value. It’s just wrong for big corporations to pocket massive, permanent tax breaks and reward the wealth of top executives with more stock buybacks, while closing facilities and laying off workers. The surge in corporate buybacks is driving wealth inequality and wage stagnation in our country by hurting long-term economic growth and shared prosperity for workers. We need to rewrite the rules of our economy so it works better for workers and not just those at the top. This legislation makes it clear that empowering the voices of our workers and investing in our workforce is more important than using tax breaks and corporate profits to reward shareholders with more stock buybacks.”

Those who support buybacks contend that when they give money back to shareholders, many of the beneficiaries are ordinary people (over 50% of American families own stock, directly or indirectly). Moreover the profit that investors gain can be reinvested in entrepreneurship or new stocks or spent on goods and services; all of which benefits the economy.

This bill has three cosponsors, all of whom are Democrats. This bill is supported by the Roosevelt Institute, AFL-CIO, Communication Workers of America, Public Citizen, Take on Wall Street, and Americans for Financial Reform, as well as multiple media outlets.

Of Note: Since the enactment of the Republican tax bill (aka the Tax Cuts and Jobs Act), corporations have announced over $225 billion in stock buybacks, overwhelmingly benefiting corporate executives and shareholders. Corporate boards, often driven by activist investors, spend a significant amount of their profits buying back their own stock and issuing dividends — resources that detractors argue would be better suited to long-term investments in workers, training and innovation.

Economists have studied Germany’s codetermination system’s effects on the country’s economy, and while the results are mixed, studies have generally found that codetermination and “works councils” (workers’ representative organizations) lead to higher wages, less short-termism, greater productivity, and higher levels of income equality. However, codetermination may reduce profitability and lower returns for shareholders, suggesting that codetermination shifts power and corporate earnings away from shareholders and towards workers.

AKA

Reward Work Act

Official Title

A bill to prohibit public companies from repurchasing their shares on the open market, and for other purposes.

Yes! Stock buybacks artificially raise the price of a corporation’s stock and lead to even bigger pay raises for the CEO and the executive board without any effort on their part. This practice only obscures the real value of the company. Also, at a time when we have ever increasing income and wealth inequality employees need to have some say over who runs the corporations that employ them! This is a great bill!

This idea is so misguided it is hard to believe that anyone would actually propose it. Stock issuance and stock repurchase are a fundamental principle of corporate (public company) finance. Corporations issue stock to raise capital and expand. The value of those shares is roughly related to the value of the corporation’s assets plus a premium based on the expected potential for a profit. Issuing more shares decreases the underlying value per share. Buying back shares increases the value per share. There is NOTHING ARTIFICIAL about the increases or decreases, as the bill summary states. In many cases, the employees are also shareholders through 401Ks or other stock purchase plans. So the value of the employees shares are also affected directly based on these actions. The idea of prohibiting stock repurchases (only one side of a transaction) is absurd. The bill also proposes that public companies be required to have one third of the board consist of employees. Although this might have some attraction to a company as part of good management, requiring it by law seems Communist inspired. I guess that’s no surprise considering the political leaning of the sponsoring Senator. These days, communists call themselves Democratic Socialists. Overall, the bill is a bad idea and another attack on American values that we have fought so hard to protect.

No it should not be prohibited at all. It’s a private company. Who are you to tell a private company what to do with their own money? Think of it this way. When they buy back their stock, it helps small investors also. The company’s stock goes up significantly, allowing the investor to make a profit. Then that investor can invest in creating jobs or raising wages.

Reagan administration's decision to make stock buybacks legal coincided with longterm wage stagnation. Since then, something like 90 percent of corporate profit goes to this rather than reinvestment in employees. It's simple stock manipulation to line CEOs and heavy investors profits in the short term. Theres no good reason for it to be legal besides some vague sense of "government=bad" that has been drilled into conservatives heads. Government IS bad-- it's just that it's when they don't protect the economy from reckless aristocrats.

Why is this up for debate? The purpose of government is not to control the private sector. That's why it's called the private sector, and not the public sector. Keep the government out of this. Regulation is good up to a point, but this is WAY overstepping the boundary between sensible and ridiculous.

These idiot politicians don’t know how to run a business, many of them have never even had a job in the private sector. They know nothing about basic economics, they can’t even balance a budget. Yet they think they can dictate how executives run their companies. The government ruins every industry it tries to manage. Get the government out of the business of running business.

This needs to be passed. Your great tax cut only helped the corporations by allowing them to purchase buybacks and not reinvesting in their workers. I think everyone in the United States should go on strike and then maybe you will realize that the country would not run without the workers working

This is far too simplistic of a solution. There may be reasons when a stock buy-back makes sense because it benefits the company, the bought-out stockholders, and the remaining stockholders. Maybe there should be a regulation that a company can only buy back so much percentage or value of its stock during a certain period. For example, maybe a complete buy-back should take 10-20 years. If the point of the Trump corporate tax cut was to create jobs, maybe it should have been structured as a job-creation corporate tax credit. Our politicians need to rely on staff (their own or CBO) who understand economics and the incentives that various tax policies create.

I fully agree that stock buybacks help companies artificially boost their stock prices, manipulating the market to reward corporate executives and shareholders instead of workers. Empowering employees to elect members of their corporation’s board would align companies’ and employees’ interests. 6*1*18

Absolutely! I just wish this bill had more teeth and actually put an end to the corrupt practice of stock buy backs. All they do in enrich corporate executives & to a much lesser degree, shareholders while doing next to nothing for the workers. No wonder they are at an all time high and rising under 45.

Absolutely. Stocks buy backs have absolutely no business purpose. The company gains no benefit whatsoever. From the standpoint of running a business it makes no difference if the price of their stock is $5 or $500. The only time a company gains resources to expand their business is when the company issues stock or bonds. A company gets nothing on the trading of stocks or bonds on any stock exchange, that is simply a bargain between the buyer and the seller. The company got their money when the issued the stock, after that they don’t own the stock and don’t get anything when the stock is resold. Stated simply, it is merely a way to artificially boost stock prices, usually, just in time to pad executive’s pay (mainly) and large stockholders. Market manipulation is not a function of a free market and this creates a golden opportunity for insider trading.

All this does is allow companies to make their company LOOK BETTER on the Market, but if they are buying their own stock, their business will eventually collapse. That’s what is going to happen. This whole business is negative for workers. All it does is put workers in a worse place than they are already.